Insatiable demand for sovereign debt drove German, U.K., Japanese and Swiss ten-year securities to all-time-low yields this morning. A flight to safety, spurred by Brexit fears and massive buying by the European Central Bank and Bank of Japan combined with expectations that the Federal Reserve will refrain from raising rates next week, has made investors willing to scoop up the ten-year paper at ever-higher prices. Janus bond guru Bill Gross yesterday joined a chorus of concerned observers worried that the slightest rise in yields could spark a rush for the exits, with more than $10 trillion in global sovereign debt currently held that was purchased at negative yields. For now, however, the flow of capital into debt markets appears unstoppable, with Jefferies’ quantitative research group estimating that nearly $8 billion in fresh money poured into global bond funds last week, the second-largest inflow in 14 months.
Moody’s cuts Illinois. On Thursday, Moody’s Investors Service lowered its credit ranking for debt issued by the state of Illinois from Baa1 to Baa2, shortly followed by a downgrade by rival S&P Global Ratings. The downgrades comes as the state begins its second year without a budget, paralyzed by gridlock between the state’s Republican governor, Bruce Rauner, and Democratic-controlled legislature. According to data compiled by Bloomberg, this marks the lowest rating for a U.S. state in over a decade.
BP divests Norwegian fields. On Friday, oil giant BP announced a sale of oil-field operations in Norway to a newly formed company controlled by Kjell Inge Roekke in a primarily stock transaction valued at more than $1 billion. BP will maintain 30 percent ownership in the new entity, named Aker BP. The cash payment of $140 million puts a small dent in the $3 billion in asset sales targeted for 2016 by BP.
Line IPO to raise more than $1 billion in fresh capital. Regulatory filings on Friday confirmed that Japanese message app giant Line Corp. plans to raise more than $1 billion in an initial public offering to be listed in both Tokyo and New York. Line, a subsidiary of Korea’s Naver Corp., attempted an IPO at a higher valuation in 2014 before withdrawing because of weak market conditions.
Puerto Rico bill passes house. On Thursday, a bill designed to provide debt relief for the territory of Puerto Rico passed by a wide margin in the House of Representatives, sending the legislation to the Senate. In advance of a July 1 deadline for a major debt payment, many political analysts anticipate that the Senate will embrace the bill without tinkering with the terms. One sticking point with GOP lawmakers may be the seniority of pension obligations over that of outside creditors.
